GBP: Data-dependent BOE easing risks – BBH

Brown Brothers Harriman’s (BBH) Elias Haddad highlights that the Pound underperformed after weak UK Q4 GDP reinforced expectations for further Bank of England rate cuts. Markets price a high probability of a March cut and around 50 bps of easing over twelve months. Upcoming UK labor data, CPI, retail sales and PMI are seen as key for BOE policy and GBP direction.

Soft growth and key UK data

"GBP underperformed last week as disappointing UK Q4 real GDP growth reinforced the case for additional Bank of England (BOE) rate cuts. The swaps curve implies 74% odds of a 25bps rate cut to 3.50% at the next March 19 BOE meeting and a total of nearly 50bps of easing in the next twelve months."

"Slower UK wage growth and inflation this week can cement a BOE rate cut next month and further weigh on GBP."

"In line with the BOE’s forecast, the unemployment rate is expected to remain unchanged at 5.1% for a third straight month in December, and private sector regular pay is projected to ease to 3.4% y/y (lowest since November 2020) vs. 3.7% in November."

"Headline CPI is expected to fall to 3.0% y/y vs. 3.4% in December due to lower utility prices. Core CPI is also expected to decline to 3.0% y/y vs. 3.2% in December, while services CPI is seen at 4.3% y/y (lowest since March 2022) vs. 4.5% in December."

"The UK January retail sales and February PMI reports (both on Friday) will offer a timely update on economic activity."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)